"They have never had it so good"

21 November 2010

For the vast majority of people in the country today they have never had it so good ever since this recession – this so-called recession – started.

So remarked Lord Young, and caused a storm of controversy, indignation and recrimination. Publicly rebuked by the prime minister, he has now resigned from his post as an enterprise adviser to Mr Cameron. Lord Young primarily referred to those home-owners who enjoy a substantially lower rate of mortgage than a few years ago. He also seems to have underplayed the effects of the projected increase in the unemployment. His remarks were terribly out of tune from the government’s carefully calibrated message of necessary cuts softened with fairness and support for the vulnerable.

It is certainly different from the past, in that this time the house prices have fallen, but so has the interest rate, unlike the situation where interest rate skyrocketed and the house prices went down. Wages usually do not follow the interest rate instantly, whereas mortgages do, so a hike in the interest rate translated into higher mortgage repayment, and represented a higher proportion of income being diverted to repayment. For those who are cash-rich and possess lots of assets, which have not depreciated, and have a totally secure income, then indeed today must be a great time. Somehow I doubt the vast majority of Britons belong to such a fortunate group.

No one can predict the future with much accuracy, and perhaps Lord Young will be vindicated in his views. The economic situation could also turn much worse, and it may be that today is a great time. However, if more people start to lose jobs, inflation for goods such as fuel and food remains high, house prices continue to fall, and the recovery remains sluggish, then this kind of remark sounds very uncaring and inopportune.